Professional Certification

Once you are sure you want to be a tax return preparer you should strongly consider some type of professional licensure. It's a big step, but it lets your clients know you are serious and dedicated. You don't necessarily need it to get started, especially if your clients are family and friends, or if you are working for someone else, under their license or certification.

In my opinion, it may be easier to study for these exams once you have some actual tax preparation experience under your belt. You'll already be familiar with some of the terms and issues, so it will be easier to digest the volumes of material you'll be tested on.

The two most highly regarded licenses are "Enrolled Agent," and Certified Public Accountant.

Enrolled Agent

Enrolled Agent or "EA" for short, is a federal license given by the IRS to a tax preparer who has passed the Enrolled Agent examination. It is a very difficult three-part exam. Some say it is harder than the CPA exam, but I can't vouch for that since I only took the CPA exam, not the EA exam.

All three parts of the Enrolled Agent exam concern tax subjects, while only one of the four parts of the CPA exam covers tax matters.

Some of the most competent tax return preparers I know are Enrolled Agents. It is not generally as prestigious of a designation as CPA, but once you get a small book of business, most of your work will come from referrals. Your official professional credentials will not be as important as your reputation and demonstrated competence.

Just like a CPA, an Enrolled Agent can represent taxpayers before the IRS. That means the Enrolled Agent can appear in place of the taxpayer, to represent the taxpayer.

Certified Public Accountant

Certified Public Accountant or "CPA" is a license granted and regulated by the state you practice in. It has nothing to do with the IRS, but it is recognized by the IRS. A CPA can represent a client in Tax Court, just like an attorney and can represent a client before the IRS in all tax matters, although criminal matters are best handled by an attorney.

Why get a CPA license and how is it different from an Enrolled Agent certification? A CPA can conduct audits and reviews of  business or personal financial statements to certify that they are fairly stated according to Generally Accepted Accounting Principles (GAAP). Only a CPA can do that.

Many CPA's have limited experience with tax matters. In a large CPA firm, some of the CPA's are mainly concerned with audits, not tax returns.

Each state has different requirements for the CPA license in addition to passing the exam. Some states require a specific number of college credits beyond a degree and in specific subjects. Other states have a work requirement: licensees must first work under another CPA's license for a specified period of time (sort of an apprenticeship).  Find out what the licensing body is in your state and visit their website to learn what the requirements are in your state.

Portability of License

The Enrolled Agent License is good no matter where you travel in the United States. You can practice as an Enrolled Agent anywhere.

A CPA license is only good in the state where you are licensed. If you move to another state, it may take years to get your license in your new state. You will have to jump through hoops like sending in college transcripts. You may even have to take more college courses. Some states make it tough for a CPA coming from another state to get licensed.